Excise taxes are applicable to certain goods and activities, such as gasoline and gambling. If your company participates in the import and export business, your company will be exposed to excise taxes. Other exposures to excise taxes include use of communications and air transportation services. Excise taxes also are applicable to items such as sport fishing equipment, vaccines and foreign insurance policies. Typically, the onus for the tax liability falls on the person purchasing the taxable item, as does the record-keeping responsibility.

DIF Score

The IRS may audit you if your return achieved a high score by the Discriminant Inventory Function System. DIF scores are computer-generated numeric scores. The DIF system uses certain formulas to compare your return to other similar returns. If your return shows amounts that far exceeds returns like yours, you may receive a higher score. Your only defense against DIF scoring is to ensure that you are in compliance with IRS regulations, and make certain that you have supporting documentation for everything that you report.

Documentation

Maintain excellent documentation on all excise tax information. A surefire way to obtain an audit is to report information that does not match your W-2s or 1099s or for which you have no supporting records. Also, remember that information reported to you on your W-2s and 1099s are also reported to the IRS by the entity that sent you the information. Follow IRS guidelines for reporting this information. Better yet, have a tax professional complete your return. If your return is complex, and you are not an expert but complete the return yourself, you may find yourself experiencing an IRS audit.

Tax Liability Computation

Make sure that all of your computations are correct. The applicable excise tax rates and the calculation of rates for taxable goods and services can be complicated. For example, the foreign insurance excise tax applies certain percentages to the insurance premiums according to the insurance type, but there is more to the tax liability computation. You must consider who is responsible for paying the tax -- the insured, policyholder, insurer or broker. You also must consider whether the risk is foreign or domestic, and then consider the risk type. The person or entity being insured also is a factor that you must consider. The complexity of your tax liability does not exempt you from an audit, but improper treatment of a taxable item assures your chances of obtaining one.

Penalties

The IRS imposes various penalties and charges for failure to comply with excise tax regulations. Excise audit failures can include noncompliance with tax payments, which occurs when you do not make payments on time or fail to make payments, fail to keep records, or file late or fraudulent tax returns. You also are noncompliant if you fail to register. The fines for failing to register can be steep -- $10,000 for the first failure and $1,000 per day until you register. Criminal penalties apply for fraudulent or false claims. If you provide communication or air transportation services and you choose not to collect or attempt to evade the applicable excise taxes, you may face "trust fund recovery penalties," which is equal to 100 percent of the taxes not recovered.